Introduction to Business Banking

Chapter 1: Introduction to Business Banking

The introductory video sets the stage of what is to come.  It covers off on the key principles of banking and touches on the elementary setting that utilising leverage can both create and destroy wealth.  We want our viewers to create wealth and we are comfortable in sharing our knowledge to achieve this outcome.

Risks in Borrowing

Ian clearly explains that the inherent risks in borrowing money goes well beyond interest rate risk and the issues of rising interest rates.  Listen in to find out more about funding risk, term risk, credit risk and financier risk.  Convert this categorical knowledge into action.

Welcome (Transcript of video)

Hi, I’m Ian Robinson and welcome to another edition of Robinson Sewell Partners Business Insights.

Today we are going to talk about debt and business banking in general terms and what this means to your business

… and also how you can strategically improve your financial position by some simple manoeuvres that puts you back in control of your debt structuring.  Ultimately you want more money flowing to your bottom line and with the application of some key principles, this is easy to achieve.

All businesses use or have used leverage, whether they be Agribusiness, Commercial or Corporate operators.  The purpose of utilising leverage though may vary, which include but not limited to;

Debt in the business, if utilised correctly, can improve your return on assets and create real balance sheet wealth.  If it is not utilised or managed correctly, it can destroy wealth.  A business must clearly define what the strategic purpose for borrowing money is, and how it is going to be managed going forward.

Risks inherent in borrowing money also need to be fully understood.  Any borrower is exposed to the following risks;

1. Interest rate Risk: (upward revisions on interest rates placing additional pressure on cash flow)
2. Funding Risk : which is inherent within the Terms and Conditions of the borrowing contract and is the hidden serpent.  A technical default can be triggered, not because of not meeting the repayment commitment, but because other technical factors that have been breached.
3. Term Risk:  The maturity of your facilities requires either a full repayment of the loan, rolling over the loan or seek a full refinance of the loans.  Your business will be exposed to term risk under each of these scenarios.
4. Credit Risk : the credit profile of a deteriorating business will impact the ability of your financier to support you on an ongoing basis.  This is captured in the annual review process, so this rudimentary requirement cannot be under estimated.
5. Financier Risk: Exogenous factors that affect the banking industry or the financier you are dealing with which then in turn may impact the facilities the bank can provide your business.

Accessing credit through the Australian traditional banks for commercial purposes can be daunting as there is no transparent metric to apply to your methodology.  It takes a career banker 10 years to become an experienced commercial lender, how can a client expect to understand the delicacies of the funding submission and approval process.

This point is critical, and over the next 5 Robinson Sewell Partners Business Insights I will detail each of the 5 critical steps to procuring the best funding platform for your business.  These will include;

1)      Information Control

2)      Know your Business

3)      Know the Bank’s Business

4)      Bank Presentation (submission and annual reviews)

5)      Bank Negotiation

Thank you for listening in.  Feel free to make contact with Robinson Sewell Partners to discuss further and I look forward to connecting with you again soon.